• Abhijit Maheswari

A quick analytical study of consumer price volatility across rural and urban India

Updated: Feb 26

Prices are important. Demand and Supply helps us arrive at the price. This is what we learn on the first day of any economics lecture. Real world is little more complicated than that. It has a government and there are interventions.

For example, Cereals and Sugar have a minimum support price (MSP as popularly called) in India. It is largely unaffected by consumer behavior. It beautifully reflects in the charts. Here, rather than market forces, government decides on the price. Unlike cereals and sugar, government doesn't have MSP for vegetables. And the price swings cannot be missed in the chart below.

Price trend in vegetables

Let us look at the consumer price data in India for urban and rural markets. Here, the data analysis is visual and self-explanatory. We try to understand the price trend for the past 3 years. This includes all the essential grouping of products and commodities as shared by Ministry of statistics. One of the few datasets which are published monthly and with 1 month lag. RBI will do us a lot of favor if there data release lags can be shortened too.

Coming back to CPI, one unmistakable observation is vegetable and pulses. You control the supply of these two item, you can control inflation in India to a large extent. Talking about managing supply and demand, where better to learn from, than this country. Agreed, India is 100 pound gorilla and different in many respect. For a start, India can have better and faster data release. Next, building a culture of taking decision based on data and data only.

If food processors get into long term contract with vegetable growers they can certainly protect themselves against price swings. Expanding the cold storage network should be a national priority, just going by this data. I would be surprised if you didn't know that already. Most swings are also seasonal. From the chart below, you will notice the 'September-December' period sees upward price pressure. Has this data been used to organize vegetables supply chain ?

CPI covers these categories

For the analysis, we also cover the following goods, products and core category indices: Cereals and products, Meat and fish, Egg, Milk and products, Oils and fats, Fruits, Vegetables, Pulses and products, Sugar and confectionery, Spices,Non-alcoholic beverages, Prepared meals; snacks; sweets etc., Food and beverages, Pan; tobacco; and intoxicants, Clothing, Footwear, Clothing and footwear, Housing, Fuel and light, Household goods and services, Health, Transport and communication, Recreation and amusement, Education, Personal care and effects, Miscellaneous, General Index (All Groups) and Consumer Food Price Index

Urban (market) India

Rural (market) India

The trend line show consumer price index for Urban, Rural and combined Indian markets. The orange trend line denotes urban, rural is blue and combined is green.

Price trends across segments.

Key Takeaways from the Consumer price charts

1. Sugar and confectionery has one of the lowest volatility in food and beverage category in both urban and rural markets.

2. Vegetable, pulses and Meat and fish have the highest price volatility in both urban and rural market. Vegetable and pulse have a combined weight of approx 10% in inflation computation.

3. Personal care product is most volatile outside food. Urban market sees more price changes than rural market.

4. Milk and milk based product follows similar trend in both urban and rural market. Low volatility in both the markets.

5. Prepared meals, snacks, and sweets price volatility in urban market is twice that of rural market.

6. Cooking oils and fats's mean value is lower than most other categories which means prices haven't increased much. Cooking oil is a daily item for any kitchen, any significant increase could have exacerbated food inflation.

7. Fruits are more expensive and volatile in urban market then rural. Though one can question the availability of large selection in the latter.

8. Non-alcoholic beverages are dearer in rural market.

9. I didn't expect this : Barring few specific food items, rural prices are higher for most non-food categories. Have a loot the chart for Education, Transportation, Health, Recreation and amusement, Clothing and footwear, fuel and light.

I don't think I have covered all the insights here. Have you see something in the charts that I have missed ? I will love to hear from you.

Data source : Mospi